Vol 7 (2010) - Issue 5

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The UNCITRAL Practice Guide on Cross-border Insolvency Cooperation: A Good Practice Guide to Cross-border Insolvency Agreements

Introduction
States often seek to assert the universality of their insolvency laws to produce a collective and compulsory regime for the better realisation of assets and the fair treatment of creditors. Increasing globalisation inevitably leads to more insolvencies crossing national boundaries, leaving courts and insolvency practitioners needing to rationalise inconsistent and at times mutually exclusive regimes. Various legal frameworks have been advanced for the harmonisation of crossborder insolvency regimes but until such time as a global model is universally applied, ad hoc situations will arise that need to be dealt with on a case by case basis. The use of insolvency agreements has evolved to cover this legal hiatus.
In 2005 the United Nations Commission on International Trade Law (UNCITRAL) commissioned a project to investigate methods of coordination and cooperation in cross-border insolvency cases. This was viewed as closely related and complementary to the UNCITRAL Model Law on Cross-Border Insolvency (the 'Model Law'), and, in particular, article 27 of the Model Law, which encourages cross-border cooperation and the use of cross-border agreements. This project culminated in July 2009 when UNCITRAL adopted the Practice Guide on Cross-border Insolvency Cooperation (the 'Guide'). The Guide received a recommendation from the UN Commission that it should 'be given due consideration by judges, insolvency practitioners and other stakeholders involved in cross-border insolvency proceedings'.
This article provides an overview of the Guide and the concept of the cross-border insolvency agreement.

What has UNCITRAL done?
The focus of the Guide is on the negotiation and drafting of effective cross-border insolvency agreements. Analysing over forty cross-border insolvency agreements dating back to 1991, the Guide provides a reference source of issues that commonly arise in cross-border insolvencies with sample clauses and techniques for addressing these issues and enhancing cooperation. The Guide is not prescriptive, recognising that other solutions exist and will need to be negotiated on a case-by-case basis. However, the final version of the Guide was adopted by resolution of the General Assembly and takes into account comments provided by Governments and the UNCITRAL Working Group V (Insolvency Law).

What is a cross-border insolvency agreement?
The Guide defines a cross-border insolvency agreement as 'an oral or written agreement intended to facilitate the coordination of cross-border insolvency proceedings and cooperation between courts, between courts and insolvency representatives and between insolvency representatives, sometimes also involving other parties in interest'. An insolvency agreement will commonly be discussed and negotiated by the affected parties before it is presented to the courts for review and approval. They range from statements of good faith and intent, through frameworks for cooperation with no enforceable obligations, to agreements that are intended to have legal effect on the parties involved.
A plethora of titles is used globally for the subject matter of the Guide, including protocols, administration contracts, cooperation and compromise agreements and memoranda of understanding. A single formal agreement is not necessary and insolvency estates may enter into multiple arrangements with different parties over separate issues as and when each issue arises. The scope of the Guide is therefore very broad, which renders it more of a 'good-practice, time permitting guide'. However, an effective and well thought-through insolvency agreement can increase the efficient resolution of an insolvency, reduce litigation costs and provide a framework for tailor-made solutions to be developed, with a view ultimately to increase the return to creditors or secure the survival of the debtor in circumstances where individual state insolvencies could be value destructive.